Accounting for Reserves

38 Pages Posted: 28 Feb 2013

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Christian Saborowski

International Monetary Fund (IMF)

Date Written: December 2012


Views on the effectiveness of sterilized reserve intervention vary. Sterilized intervention is generally seen as ineffective in advanced countries while persistent intervention by some emerging markets is often cited as contributing to undervalued exchange rates and current account surpluses. This paper argues that capital controls reconcile these views. We find strong and highly robust evidence that sterilized intervention is fully offset by outflows of private money in countries without controls, while controls partially block this offset. For a country with extensive capital controls, every dollar in additional reserves increases the current account by some 50 cents. This is mainly offset by an opposite adjustment in the current account of the United States — the dominant reserve currency issuer with the deepest and most liquid bond markets — with a smaller diversion to other emerging markets.

Keywords: Capital controls, Developed countries, Emerging markets, Intervention, Reserve accumulation, Reserves, Reserves accumulation, capital account, capital account liberalization, capital account openness, capital account restrictions, capital accounts, central bank, central banks, closed capital account, closed capital accounts, current ? ? account, current account, current account deficit, current account deficits, current account imbalances, current account surplus, current account surpluses, current accounts, domestic currency, global current account, global current account imbalances, global imbalances, intervention, open capital account, open capital accounts, reserve accumulation, reserve

JEL Classification: F30, F31, F32

Suggested Citation

Bayoumi, Tamim and Saborowski, Christian, Accounting for Reserves (December 2012). IMF Working Paper No. 12/302. Available at SSRN:

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6333 (Phone)
202-623-4795 (Fax)

Centre for Economic Policy Research (CEPR)

United Kingdom

Christian Saborowski

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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